Baker Hughes (BKR): Initiating Coverage

Five years after its merger with GE Oil & Gas, Baker Hughes Company (BKR) is adjusting to changes in its market environment, including the fallout from the war in Ukraine, supply chain disruptions, inflation and challenges and opportunities in the transition to a zero-carbon future.

BKR has an ambitious agenda that includes improving operating efficiency across its energy and industrial businesses; exiting non-core businesses; completing tuck-in acquisitions that enhance its core offerings and competitive position; and pursuing growth in early-stage climate-oriented technologies, all while continuing to pay out 60%-80% of its free cash flow to shareholders.

Although its near-term objectives are clear, its long-term business mix is still in flux.  The planned shift to two business segments – Offshore Services and Equipment (OFSE) and Industrial and Energy Technology (IET) – will facilitate operational streamlining and provide greater optionality to respond to market developments and emerging growth opportunities.

While a rapprochement between Russia and the West could cause oil & gas prices to fall, BKR believes that prices will remain resilient, owing to demand growth and underinvestment in energy infrastructure.  Futures markets suggest that commodity prices will remain supportive of energy infrastructure investment, even though BKR’s strategic initiatives will not likely bear fruit until 23H2 or later.  My projections indicate a 2022 GAAP loss of $0.25, due mostly to Russia, and non-GAAP EPS of $1.02.  For 2023, I show GAAP EPS of $0.95 and Non-GAAP EPS of $1.44.

I am initiating formal coverage of BKR with a rating of “2” (outperform) and $28.50 price target.  My price target equates to a potential total return of 15%, including the 2.9% dividend yield.

This is a summary of my recent report on Baker Hughes Company (BKR). To receive a copy of the full report, please reach out to me using the contact information provided below.

September 16, 2022

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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